Cleanup, Aisle Six: The 20-Year Plan

In my last post, I stumbled over the fiscal solution I've been seeking since I started this blog.

The fiscal problem is to reform the tax code, institute a fair tax code, eliminate deficits, pay off the government debts, make the safety net safer, take care of those unable to care for themselves and reset government functions back to the originally intended functions of Justice, State/Intelligence, Defense and Treasury; everything else goes or is funded by user fees. This brings the cost of government to a little over 10% of GDP.

Federal         3.75%
State             1.58%
Local            5.25%

Total            10.58%

Details on this can be found here; I compare my budgets to federal & state budgets and I use my city's budget as a template for local spending; except for public schools where I use my own unrefuted number of $6,660 per student.

Total government spending was $6.1 trillion and GDP was $15.68 trillion in 2013.

So, the cost was 6.1/15.68 = 38.9% of GDP.

Cutting it to 10.58% puts $4.18 trillion back in play after subtracting the federal deficit of $680 billion and the state & local deficits of $253 billion. In my previous post, I neglected to subtract out the annual government deficits and I also double-dipped on FICA.

This $4.18 trillion can be used for the cleanup operation as follows.

The Cleanup

Debt
To pay off the debt, we allocate $750 billion/year. This is sufficient to pay off the entire $20 trillion national debt (federal, state and local minus the $5 trillion we owe ourselves) in about 20 years.

I cancelled our self-debt as a means of forgiving ourselves for being stupid for so long. However, I'd apply the proceeds of the sales of the $4 trillion in securities held by the Federal Reserve to the debt and call 80 cents on the dollar a win; considering the black hole that is government fiscal irresponsibility.

Safety Net
To strengthen the safety net, we proceed on three fronts;

Retirement Income & Health Pay current Social Security and Medicare benefits ($1.3 trillion/year) for the next 20 years. This happens while the 15.3% in current FICA taxes are directly deposited into individual Roth IRA accounts for every worker. The 15.3% stays with us forever, not as a tax but as a self-pension; half from employer and half from employee as before but with no government as middle man. The money earns interest.

Seed all of the individual Roth accounts with (at least, for 145 million workers) $3,140/year as an incentive to work and to help those 45-and-up meet their needs; they deserve it since they got ripped off most of all in the current workforce. The money is only available at age 65 or with disability, as with Social Security. Any portion not used can be left to heirs. The principal and all capital gains are tax-free (Roths are this way because they are funded by post-tax dollars). Given that the 11 million illegal immigrants make up 7.5% of this group, there should be a bit less than 7.5% more for citizens.

Cut a check for $15,000/year for each of the 50 million poor. This is the 'living wage' idea except that no effort is required and no strings are attached beyond the 10.58% tax. This would give the poor an entire generation (beyond the 2.5 generations since LBJ's Fair Deal) to haul themselves up. Given that the 11 million illegal immigrants make up 20% of this group, there should be 25% more for citizens.

Combined with the new and improved retirement benefit, I can't see how they'd fare better. Parents can buy insurance for themselves and their families and get about $7,000/year in cash. Children can be well-fed, well housed and can have school choice. 

Tax Reform
All corporate and social welfare and insurance programs are replaced by radically lower taxes on individuals and businesses (a combined federal, state and local flat tax of 10.58%). 

All overseas profits are repatriated at the new, lower rate.

All tax deductions, exemptions, breaks and credits are eliminated. All sales, sin, fuel and property taxes are also eliminated. Anyone or anything that benefits from defense, police, firefighters pays tax, even non-profits and religious groups.

Fund transportation with targeted taxation on users; basically 5 cents per ton-mile on the big stuff like trucks, buses, ships and passenger/cargo planes. Cars are exempt since they produce little wear and tear on roads.

All other taxpayer-funded insurance goes away except FDIC and unemployment which shall be funded by banks and employers, not taxpayers. How much? FDIC needs to cover all depositors up to $250,000/each suggesting an impractical fund of $50 trillion for 200 million depositors. Unemployment should cover, say 10% unemployment for, say 6 months suggesting a fund off $400 billion. Problems here.

This is a tax scheme that harms everyone equally.

Deficits
Government will not borrow any more money without a plan to pay it back without taxpayer funds; we are capitalists, after all. If we want a new road, we have to raise the ton-mile fee to pay for it. If we want to fight a war, we have to raise the flat tax to pay for it. If the rest of the world wants the safety of our treasury notes, we can charge them to buy it instead of paying them interest on a loan we don't need; like shares in Corporation America.

The government employees who deliver welfare can reorganize into private businesses or join the poor since their jobs would no longer exist.

Government buildings and the millions of government vehicles can be auctioned off with the proceeds used to offset taxes.

Take Care of Those Who Can't

One thing that irks me in our state budget is the inordinate funding we give to the state university system.

We subsidize them with $2.8 billion/year but tuition keeps rising. An out of state student pays nearly as much to attend UCONN as Harvard when subsidies are applied.

By contrast, there are 1.7 million long term care beds nationally with an 85% occupancy rate. These 1.45 million beds cost $67,525/year each (for full private care) or about $0.5 billion/year for my state based on population and demographics; less than we currently pay for prisons.

If we manage to get rid of Medicare/Medicaid, we still have to do this.

Summary
After 20 years, America will have restored itself;

• Debt-free.
• Taxes will be 10.58%, no exceptions, starting tomorrow; the rest is a 20-year fine for being stupid.
• Public schools in impoverished cities will have to compete like other businesses since poor kids will have $15,000/year at their disposal.
• Lifetime savings can be passed to heirs.
• People will have ~30% more of their gross pay in their pockets or retirement accounts.
• Charities will do much better with so much freed up cash.

Follow-Up on Free Trade Agreements
I had a conversation with my brother Kel about free trade. He was surprised when, in my last post, I said "The erosion of the middle class was caused by free trade agreements that forced jobs abroad".

He correctly pointed out that free trade was a bastion of fiscal conservatism and my statement was at odds with my claim of being a fiscal conservative.

I've given the conversation some more thought.

First and foremost, my statement was aimed at the liberal reverence of the Clinton administration; that it was a liberal who began the trend of ending protectionism; a bastion of liberal policy.

Second, I don't believe trade is free if it causes a net outflow of $480 billion from our economy; two thirds of the deficit is with China. I have to believe that we still produce something of value to the Chinese; except that they routinely ignore intellectual property rights and produce our inventions for themselves for pennies on the dollar.

I've said before that there really isn't a middle class in the US...not sure there ever was. That said, $500 billion/year would still create more than a few jobs; far more than the equivalent amount in government handouts.

A Common Liberal Mistake and Simple Arithmetic

After my last post, I got a (presumably) facetious reply from my old friend Larry.

Larry wrote "I'm glad that you have figured out that all the problems in this country have been caused by liberals and all the solutions only come from conservatives.  Conservatives, the Pro-fetus not pro-life group."

I presume the first sentence to be facetious because, after all, Larry is a progressive, liberal, socialist, communist or whatever they call themselves these days. They keep changing their monikers to distract us from their purpose of making all Americans dependent on the government teat while punishing those who work.

Of course, contrary to Larry's facetious intent, I think the first sentence is quite correct. The mortgage meltdown was caused by liberal policies that tried to encourage home ownership by reducing loan underwriting thresholds. The erosion of the middle class was caused by free trade agreements that forced jobs abroad. The current mess in the Middle East was caused (9/11/2001) by ignoring foreign policy in favor of things like Hillarycare and the 'service economy', then topping it off by putting Hillary in charge; heaven help us in 2016. All three policies began under (Slick Willie) Clinton but I digress.

It was the second sentence has me writing this post; not just because the meaning is unclear (fetuses are alive, right?); aside from a possible jab at conservatives in general.

Larry, like most progressive, liberal, socialist, communist types has mistaken my fiscal conservatism for social conservatism. I'm not sure if they do it on purpose or if they do it out of ignorance.

Larry is an excellent engineer and a pretty smart guy (excepting his political leanings) so I'm hard pressed to call him an ignoramus like Paul Krugman. Thus, I must conclude that he wrote the pro-fetus nonsense on purpose to steer the conversation away from money; my only conflict with liberals.

The problem for Larry and other redistributionists (a moniker marginally shorter than progressive, liberal, socialist, communist types) is that I simply have no interest in fetuses, pro-life, pro-choice, rubbers or abortions; nor should government since it's a woman's choice. Not that I favor them but if more young and poor people had more abortions there’d be fewer poor children for the liberals to use as human shields for their dumb ideas.

As I've said before, if government got out of health care then the whole abortion and birth control debate would go away or at least fade to page seven below the fold. Surgical abortion is cheap and abortion pills are cheaper. Condoms and abstinence are cheaper still.

The million or so abortions (25% of the birthrate) in the US every year would cost less than 10% of what liberals pay for their coffee at Starbucks. Since it's legal, liberals (and anyone else) can buy as many abortions as they'd like; please just leave the rest of us out of it. Same goes for welfare (including corporate welfare, Medicaid and all the rest of the 100+ other redistribution programs) and the biggest ripoff of them all; FICA.

I have no use for social conservatives; Muslims, who routinely beat and abuse women are among the most socially conservative groups on earth. I would no sooner go to the Middle East than I would shove a hot poker in my eye.

If the Republicans would back away from social conservatism and focus solely on fiscal conservatism they'd get a lot more votes, even in blue states.

Why? Because most of us lean liberal when we're young but those paying attention soon realize that liberal programs are stupidly expensive; the ideas are noble but the implementations are highly inefficient and ineffective.

As proof of this assertion, consider that the percentage of poor has not really changed in 50 years despite (borrowing and) spending $17 trillion plus $9 trillion more in debt service and ignoring the cost of lost opportunity. This clearly is not having the desired effect.

Our government has no legitimate business in our bedrooms, on our telephones or in our doctor's offices without a proper warrant based on reasonable cause. How we choose to pursue happiness is none of their damned business until we infringe on the rights of others.

As I keep saying, government should focus on Justice, State/Intelligence, Defense and Treasury; everything else should be voluntary. This brings the cost of government to a little over 10%. A bit more than the tax level that brought on the American Revolution (7%) but the world is a bigger place now.

This change would put about $5 trillion/year back in play for ordinary Americans (~30% of GDP).

Liberals could then cut checks for $30,000/year to each of the 50 million poor out of their $2.5 trillion and pay off the entire $20 trillion national debt (federal, state and local) that their policies have racked up. The area under the curve below (1/2bh) is equal the federal debt of $17 trillion. State and local debt is about $3 trillion.

They'll be done with the debt in 20 years and they can subsidize the poor as long as they like with the extra $1 trillion/year to see if their Great Society will ever happen; my guess is that the ranks will grow, not shrink so they'll need the extra trillion/year. However, with this scheme, I couldn't care less.

Poor kids will be able to pay for school choice, pre-K and post-secondary training. The poor will have the so-called living wage and can buy their own damned insurance; all without having to work. Sounds like a disaster to me but, again, it's not my money.

Conservatives could bankroll a proper retirement savings plan for all those on FICA as well as government employees; they pay current benefit levels for 20 years while the 15.3% payroll taxes go into individual Roth (tax free) IRAs to grow until age 65 or disability. They could also seed the entire workforce's IRA's with $4,000/year for 20 years with the leftovers.

Fund transportation with targeted taxation on users.

All other taxpayer-funded insurance goes away except FDIC and unemployment which shall be funded by banks and employers, not taxpayers.

All deductions, subsidies, exemptions and credits go away. All of it.

The 5-10 million government employees who deliver welfare can reorganize into private businesses or join the liberal-funded gravy train since their jobs would no longer exist; fair trade of 10 million for 50 million, yes?

After 20 years, America will have restored itself; Debt-free. Taxes will be 10%, no exceptions. Public schools in impoverished cities will have to compete like other businesses. Welfare will hopefully have ended when the liberals get tired of the stupidity of it. Lifetime savings can be passed to heirs. People will have 30% more of their gross pay in their pockets. Those in need of long term care can get it with maybe a small assist from charities. Charities will do much better with so much freed up cash.

Simple arithmetic.

A Fix for Unemployment

My old friend Jack gave me the idea for this post. The idea is the absurd belief that a four-year degree is the only path to success. It worked out OK for me and many other boomers but it apparently is not working for lots of millennials.

So, what are the degrees awarded these days?

At first blush, you'd think there'd be more new businesses with all those business degrees; nearly 30% of the 1.3 million total for 2009-2010.

Distribution-wise, this doesn't seem too different from my college years except for the increase in business degrees at the expense of liberal arts (including math, chemistry and physics). Interestingly, computers and education are in decline.

Are there too many graduates?

Maybe but I don't think so; we're nearing the 30% level for college and 90% for High School. In 1979 (when I got my degree) it was more like 18% and 65% (darker curves). The growth in educated labor is about 50% over 35 years if we exclude the late bloomers (lighter curves). In that same time, GDP has more than tripled and population is up 50%.

The economy back in 1979 was quite horrible (interest rates near 20%, unemployment at 6% heading to 10%) but the US still made stuff; now we mostly service stuff made elsewhere.

A college degree means overhead to employers; they expect big returns on their hiring investment. Even the government, the least efficient thing on earth, only employs 14% of the workforce; real businesses typically have 4.5% overhead.

In a recent NY Times editorial, the author writes;

"The general message from these leaders is this: More young people would be hired if they had the right qualifications, but too few have the skills and discipline needed to succeed in today’s demanding workplace. 

Over the last few years, I’ve interviewed more than 200 young people from diverse backgrounds of income, education, race and geography. About half told me that they had liberal arts degrees, and I was struck by how many of them regretted majoring in a discipline now seen as impractical. 

Many liberal-arts graduates say they are eager to find an employer willing to train them in skills that don’t require a degree in engineering or computer science. But their pleas appear unlikely to be answered. Most corporate training today is directed at employees who arrive with technical skills already developed — if not through their college degrees, then though specialized internships.

One problem is that young people are competing both with their peers and with experienced applicants willing to accept entry-level salaries.

Financially struggling boomers fill many of the jobs that young people once assumed would be theirs. And according to a recent poll, nearly half of workers 50 and older expect to retire later than they had previously thought."

Finally, the gains by conservatives in shrinking government have also contributed to a loss of potential for welfare state degrees like psychology, sociology and ethnic/gender/cultural studies. Degrees in history and philosophy usually lead to law school but I think we'd all agree that there are already too many lawyers.

Mike Rowe, widely-known from the hit TV show “Dirty Jobs says “We’re lending money we don’t have, to kids who will never be able to pay it back, for jobs that no longer exist,” he explained, echoing what he told TheBlaze TV’s Andrew Wilkow earlier this month. “That’s crazy, right? That’s what we’ve been doing for the last forty years.”

He goes on to say “I’m not against a college education. I’m against debt,” he said. “That was the only four letter word in my family…”. Are the politicians out there listening?

Rowe doesn't say what jobs are out there but, with little study, I can see he may be right. According to this site there are or will be 5 million jobs for college grads with a median wage over $56,000, 3 million jobs for high school grads with a median wage between $34,000 and $56,000 and 18 million jobs for anyone else for median wages between $22,000 and $34,000. These are predictions from the Bureau of Labor Statistics for jobs over the next 8 years.

That's 26 million jobs over 8 years with 21 million for workers without degrees. As boomers retire and youngsters come into the workforce, we can expect the workforce to stay the same or shrink a little because there were more boomers than millennials but boomers find themselves unable to retire.

The net result is that if the prediction is correct, there are sufficient jobs for 100% employment of the entire workforce of 170 million. Unlikely but encouraging.

The objective should be to increase non-government-subsidized employment, not to provide a baseless wage increase or to admit millions of low-wage illegal immigrants.

For example, after we deport the 11 million illegal aliens, lots of jobs in the agriculture, restaurant and hotel businesses (among others) will also become available.

As another example, after we finally eliminate all government employee unions (with Wisconsin leading thee way), lots of the cost of government can be shaved by hiring individuals on an at-will basis with lower pay and ordinary benefits like high-deductible health plans, Social Security and Medicare. Those with no jobs will be happy for the opportunity and those who lose them will gain an appreciation that they may have lost along the way to the fiscal ruin of the municipalities they serve.

For a third; bring back apprenticeships. These should be in jobs that can't be exported; plumbing, electrical, HVAC, landscaping, engine mechanics, drivers and so on. These jobs should not have minimum wage restrictions since they also supply training at the employer's expense; taxpayers pay about $15,000/year to school kids (poorly).

Manufacturing jobs will continue to be outsourced to low wage, low regulation countries as the pols sign more trade agreements; keep your eyes on the Pacific rim as the current administration tries to export more jobs there. An exception can be found in Volkswagen who built a factory here to avoid the higher labor costs in Germany as well as transoceanic shipping.

Rowe is backing up his words with cash; the mikeroweWORKS Scholarship Fund. This fund is good for about $15,000 per scholarship; equivalent to 100% tuition at welding school. The goal is to get high school seniors ready to enter the workforce with the skills they need to land the jobs that are available in the U.S. — the key word being available.

The caveat is that applicants must sign this pledge:

1. I believe that I have won the greatest lottery of all time. I am alive. I walk the Earth. I live in America. Above all things, I am grateful.

2. I believe that I am entitled to life, liberty, and the pursuit of happiness. Nothing more. I also understand that “happiness” and the “pursuit of happiness” are not the same thing.

3. I believe there is no such thing as a “bad job.” I believe that all jobs are opportunities, and it’s up to me to make the best of them.

4. I do not “follow my passion.” I bring it with me. I believe that any job can be done with passion and enthusiasm.

5. I deplore debt, and do all I can to avoid it. I would rather live in a tent and eat beans than borrow money to pay for a lifestyle I can’t afford.

6. I believe that my safety is my responsibility. I understand that being in “compliance” does not necessarily mean I’m out of danger.

7. I believe the best way to distinguish myself at work is to show up early, stay late, and cheerfully volunteer for every crappy task there is.

8. I believe the most annoying sounds in the world are whining and complaining. I will never make them. If I am unhappy in my work, I will either find a new job, or find a way to be happy.

9. I believe that my education is my responsibility, and absolutely critical to my success. I am resolved to learn as much as I can from whatever source is available to me. I will never stop learning, and understand that library cards are free.

10. I believe that I am a product of my choices – not my circumstances. I will never blame anyone for my shortcomings or the challenges I face. And I will never accept the credit for something I didn’t do.

11. I understand the world is not fair, and I’m OK with that. I do not resent the success of others.

12. I believe that all people are created equal. I also believe that all people make choices. Some choose to be lazy. Some choose to sleep in. I choose to work my butt off.

On my honor, I hereby affirm the above statements to be an accurate summation of my personal worldview. I promise to live by them.

Signed ____________________________________

Dated _____________________________________

I'm not big on pledges but this sounds good to me!